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Hollister climbs off discounting high horse

By Tiffany MontgomeryNovember 09, 2009 5:35 AM

When the recession started, Ambercrombie & Fitch CEO Mike Jeffries was adamant that the company's chains would not risk hurting its brands by discounting.

Here's what Jeffries said in November 2008 when sales continued to deteriorate and analysts were pestering him with questions about Abercrombie & Fitch stores holding prices and even raises prices in some areas.

"We remain committed to our full price strategy. We will not be promotional to drive top line sales. We will use markdowns only to clear through seasonal product in a brand-positive way," Jeffries said.

"It is clear to us that the short-term relief provided by the use of promotions is more then offset by the damage inflicted on the brand in the long-term," he said. "Promotions are a short-term solution with dreadful long-term effects."

After months of posting some of the worst same-store sales in retail, the strategy appears to be changing, especially at surf-inspired Hollister stores.

Here's an excerpt from a research note sent out today by Eric Beder of Brean Murray, Carret & Co.

“While the stores have also somewhat slowed the level of logo-driven looks (though not to the depth of Abercrombie), discounting is pervasive at the chain in both the back and front of the store, from all outerwear 30% off, and 20% off selected hoodies, sweaters and tank tops, with selected denim styles once again $39.50 (fully in American Eagle’s wheelhouse.)

“We are also seeing, for the first time, Hollister becoming more aggressive in advertising price cuts, with subtle signage in the front of the store advertising the outerwear sale; give the continuing debacle (same-store sales have been the worst among the teen players for the last nine quarters) at the chain, we believe management needs to do everything possible to drive traffic. We remain skeptical these changes (especially in the tough environment) will lead to increased traffic.”